The idea for a peace council was discussed at a traditional gathering, or jirga, attended by about 1,600 Afghan leaders and tribal elders in the capital, Kabul, in June.

Karzai's presidential palace issued a statement Saturday, which said the creation of the High Peace Council was "a significant step toward peace talks".

Karzai's plan, backed by tribal elders at the "peace jirga", involves luring Taleban foot soldiers away from the insurgency with cash and job incentives while seeking reconciliation with senior leaders by offering them asylum in other Muslim countries and striking their names off a UN blacklist.

The Taleban, however, have so far scoffed at the idea of talks, saying all foreign forces must first leave Afghanistan.

Members of the council would be announced after Ramadan, probably at the end of the week, the statement said.

Karzai's plan for eventual reconciliation with the Taleban has developed as several European NATO members examine how much longer their commitments in Afghanistan can be sustained.

In London, the British Foreign Office welcomed Karzai's announcement. "We will not bring about a more secure Afghanistan by military means alone," it said in a statement. "We have always said that a political process is needed to bring the conflict in Afghanistan to an end."

US President Barack Obama, who will conduct a war strategy review in December, also plans to begin a gradual withdrawal of US troops from July 2011 if conditions at the time allow.

There are almost 150,000 foreign troops in Afghanistan fighting the growing Taleban-led insurgency, with violence at its worst levels since the Taleban were ousted in 2001.

Gen. David Petraeus, commander of US and NATO forces in Afghanistan, said Thursday that the United States would soon start preliminary talks with its allies on next year's planned "transition" before a NATO summit in Lisbon in November.

Washington's NATO allies are increasingly uneasy about the unpopular war and are eager to shift security responsibilities to Afghan forces. Karzai has set an ambitious target of 2014 for Afghanistan to take over complete security responsibility from US and NATO forces.

The urgency of a resolution of the conflict was brought home Saturday when a suicide bomber perched on the back of a motorcycle killed seven people, including four Afghan policemen.

Sixteen other people were injured in the midday attack in the provincial capital of Kunduz, government spokesman Mahbubullah Sayedi said.

The city is a major transportation hub and lies along a crucial supply line for coalition forces that has been repeatedly attacked by Taleban insurgents, who have also stepped up attacks on police and civilians in the province in an apparent attempt to destabilize local authorities and spread their insurgency beyond their strongholds in the country's south.